Danaher shows how sticking with a troubled stock of a good company can pay off

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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. (We’re no longer recording the audio, so we can get this new written feature to members as quickly as possible.) Market talk : The S & P 500 and Nasdaq jumped to new intraday highs Wednesday, extending the gains from the prior session’s late-day rally. In fact, the S & P 500 broke above 5,300 for the first time ever. The Dow , meanwhile, was about a half percentage point away from its all-time high. The catalyst in Wednesday’s session was a cooler-than-expected April consumer price index , which caused a rally in Treasury prices and a decline in yields (per their inverse relationship). As a result, the market odds for multiple Federal Reserve interest rate cuts this year increased. A weak retail sales report for April , also out Wednesday, was seen as a “bad news is good news situation” as cooling demand for goods could help ease inflation. The one thing we’re staying guarded about in this rally is how overbought the stock market has become. You have to go back to last December to find a time when the S & P 500 Short Range Oscillator was this overbought. To be fair, it only took a shallow decline back then to work off that overbought condition — the S & P 500 fell about 2% from Dec. 28, 2023 to Jan. 4. However, the market needed a few weeks to digest the runup at the end of 2023 before it powered higher again. New high : We got a chance to catch up on Danaher ‘s bullish presentation at the Bank of America Healthcare conference on Tuesday. We thought management’s conversation was consistent with what we heard last month when the life sciences and medical diagnostics firm delivered beats across its three main businesses. We took it as a sign that the long-awaited turnaround in the biotech industry was finally here. At the conference, Danaher continued to point out that the bioprocessing inventory destock will be behind them by the second quarter, driven by the normalization of inventory levels and ordering patterns from large customers. The company prudently continued to forecast low activity in China. One point from the conference that we found particularly interesting: If drug prices come down as a result of the Inflation Reduction Act, Danaher could see a tailwind on the assumption that volumes and consumption of those drugs to patients would increase. Danaher’s business is mainly consumables, meaning it is volume-driven. Danaher shares rose more than 1% on Wednesday, adding to the 3% gains from the day before. The move puts the stock at a new 52-week high, though still about $30 per share below its Covid pandemic record. The stock’s strong performance over the past year is a good example of how it can pay off to stick with an investment in a high-quality company as it works through temporary inventory challenges. The stock price in these cases will likely bottom long before its business cycle does. Cramer quick takes “It might be a big deal for unemployment claims that Red Lobster closed about 50 restaurants abruptly. That’s a lot of employees,” Jim Cramer said. “Disney doesn’t deserve this decline as it is becoming a very cheap stock but people don’t believe that Disney is serious about the firings now. No Peltz.” “Data centers are natural gas hoggers. I think that there are going to be a lot of nat gas plants built to meet the power demand.” Up next : Cisco Systems reports after Wednesday’s closing bell, and we’re interested in hearing what the networking equipment company has to say about its Splunk acquisition. Thursday morning, we’ll hear from Walmart , Deere , and a couple of Chinese companies in Baidu and JD.com . (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.